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RPPs — never a long-term solution

Successive governments in Pakistan have failed to anticipate the country’s future demand for power generation.

All through, after the sixties, they have delayed launching vital power projects, especially in the hydroelectric sector.

Late Benazir Bhutto, in her first term as prime minister, did attempt to address the power issue but her government opted for the more expensive thermal power rather than drawing up a more comprehensive long-term power generation plan based on a mix of hydroelectric, thermal and other sources.

By the time the present government came into power, Pakistan had about 20,000 MW of installed power production capacity but was still facing a generation shortfall of 4,000 MW, as a result of which both WAPDA and KESC had to massively increase their load-shedding schedules.

Lack of investment in expanding the existing generation capacity, absence of an efficient distribution system, and increasing electricity theft has added to line losses of up to 40 percent.

In view of rising fuel costs and non-payment by distribution companies, the independent power producers (IPPs) were also operating well below capacity because they were not able to pay their fuel bills.

It was in this background that the government of Prime Minister Yusuf Raza Gilani came up with the short-term solution of installing rental power plants (RPPs), an idea that had been originally toyed with by the Shaukat Aziz government in 2006.

Both the President and Prime Minister appeared to be all for the project as they seemed to be convinced that this would be the ideal remedy to bridge the power gap. At this point, the government was working on a grand master plan to arrest the power shortage by constructing new dams and setting up more independent power plants in the medium and long term, it also perceived RPPs as an immediate short-term solution.

The only key person in the government who was opposing the RPPs was Shaukat Tarin, the then Finance Minister.

In Tarin’s view, the RPPS would increase the furnace oil needs of the power sector by 29 percent, which would enhance the import bill and further put pressure on the country’s currency reserves. While Pakistan required 35,000 tons a day to run its thermal power plants, the commissioning of RPPs would further increase demand of furnace oil to 45,000 tons.

The pro-RPP lobby in the government was arguing that power units were available from various international sources in completely knocked down condition and could be easily installed at in four to six months, whereas building an Independent Power Unit required 2 to five years.

Further, ship-mounted power plants from Turkey would provide power on fast track basis. The argument was also put forward that it took

Emerging economies such as China and Turkey, it was said, had installed RPPs to meet their short-term power supply needs.

One fact was conveniently ignored, that this was mostly second-hand equipment and would be less efficient and its operation would be more expensive. Those in favour of the RPPs also brushed aside the contention that the government would be better off spending money on upgrading the existing generation plants.

The RPP scheme was not conceived on the basis of transparency or taking into consideration the negative impact it would create in the not too distant future.

As the Supreme Court has noted in its recent verdict, ‘the contracts of all RPPs were entered into in contravention of the law and rules, thus violating the principle of transparency and fair and open competition, and making the RPPs themselves illegal and set up with mala fide intention’.

Shahid Javed Burki had ominously warned in 2009 that deals done in a tight spot are never fair to the consumers and the highly priced RPPs were never a long-term solution: “It should be understood though that depending on rented power is essentially a relief measure, not a long-term, not even a medium-term solution to the problem the country faces,” he had written.

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